Bus fare hike ‘to help pay for tram extension’

BUS fares may have to rise to help pay for the extension of the tram line to Newhaven.

City leaders insist the proposal to take trams down Leith Walk can be funded without affecting the council’s normal budget.

A rise in bus fares could be on the cards. Picture: Lisa Ferguson

But a report recommending the go-ahead for the extended route raises the prospect of bus passengers having to help foot the bill, despite previous assurances buses would not be required to subsidise the trams.

The cost of the extension to Newhaven was estimated at £144.7 million when the options were last reported to the council in June, but since then inflation has added a further £2.5m and an extra £15m contingency allowance has been built into the plan, taking the total cost to £162.2m.

The latest report, due to be considered at next week’s full council meeting, says the early costs of the project could be met by using dividend payments from Lothian Buses. The city already has £5m of dividend cash saved up and is seeking a £20m “extraordinary dividend” from the bus company – although the report acknowledges this would depend on Lothian Buses having sufficient cash reserves after covering any pension liabilities.

Council leader Andrew Burns said the rest of the money would be borrowed and loan repayments could be financed from the profits expected to be generated once the extension becomes operational.

The Evening News revealed earlier this week that the city’s SNP-Labour coalition is divided on the proposed extension, with Labour leaders keen to see it built and the Nationalists claiming the financial case is not robust enough, especially when the council is facing a massive spending squeeze.

Support from the Greens and Liberal Democrats would give Labour enough votes to push the scheme through, but senior Labour sources have indicated they do not wish to split the administration. Talks are expected to take place early next week in a bid to reach a compromise.

The report to next week’s meeting recommends councillors should agree in principle to extend the tram line to Newhaven and give approval for preparation works to begin.

Councillor Burns said: “If the decision was to go ahead, the project can be funded without any impact on the short, medium or long-term revenue budget for the council. We’re not going to have to shut anything, stop doing anything, review services.”

Repayments on the money borrowed are estimated at £9.5m a year over 30 years.

But Cllr Burns was unable to say how much profit the trams were expected to make because the figures are regarded as commercially confidential.

But he said: “Behind this there is a huge amount of documentation which is the business case for potential extensions. What it shows is it becomes profitable very quickly, almost overnight.”

The report does not specify tram profits, but appears to leave open the possibility of bus fare increases, saying: “In the longer term, public transport revenues can fund the extension and provide additional revenues to the council.”

And another section of the report, covering inflation and what would happen if tram patronage assumptions and capital costs change, warns: “In order to manage this risk, Transport for Edinburgh will have to monitor its fare policy to take account of changes in its cost base.”

There have previously been assurances that bus fares would not rise to pay for trams.

In December 2010, when the current tram line was still being built, the then-chairman of Lothian Buses, Ron Hewitt, said: “There is no question of Lothian Buses having to subsidise the tram or fares going up to pay for the tram.”

There was opposition at that time to the creation of a single body, Transport for Edinburgh, to run both trams and buses because of fears that the trams would become a threat to the successful bus operation.

A council spokeswoman said today: “The business case for extending the tram is not predicated on raising bus or tram fares.”

The existing line from the airport to York Place cost £776m and finally began carrying passengers 18 months ago.

The report to next Thursday’s council meeting says the extension will bring forward the development of the Leith Waterfront area and also increase the attractiveness of employment locations in the city centre and west Edinburgh.

Other options, to extend the line only as far as McDonald Road, the Foot of the Walk or Ocean Terminal, are ruled out because the benefits are not so great.

The report says: “Over the next decade Edinburgh is expected to be home to a faster growing population than anywhere else in Scotland.”

It quotes National Records of Scotland projections suggesting the city needs to plan for an additional 54,400 people up to 2022 and 136,400 by 2037, taking the total population from 482,600 to 619,000 over the 25-year period.

The report goes on: “An extension to the current tram line will deliver high capacity public transport where it is needed.

“Leith Walk is one of the most densely populated corridors in the UK, with 124 residents per hectare compared to the Edinburgh average of 18.

“With over 50 per cent of households in Leith not owning a car compared to 39 per cent Edinburgh average, there is already a mature public transport market in north Edinburgh.”

The report adds it is not feasible to service the future demand for transport in this part of the city by bus alone. Demand over the next ten years is forecast to exceed 4000 passengers in each direction per hour, while total bus capacity is around 2400.

The council insists it has learned lessons from the problems of the original tram project.

It says key principles for the extension scheme will include strong leadership from the top, strong political support and regular reporting by officers on risks, issues and costs, as well as clearly defined roles and responsibilities, clear reporting lines, clear management information and professional project management support.

An all-party oversight group is also proposed to keep an eye on the project, similar to the arrangement brought in towards the end of the original project.